How Trusts Factor Into Your Colorado Divorce

Many families create trusts for asset protection, estate planning and succession planning purposes. Sometimes parties to divorce cases are beneficiaries of trusts set up by their parents or grandparents.

In the event of a divorce, trust assets are a crucial consideration. Those assets may or may not be a consideration in the division of property in a Colorado divorce.  Such assets may also be an important consideration in the determination of maintenance (spousal support) and child support.

Stahly LLC has extensive experience with high-asset divorces. We are not estate planners, but we can knowledgeably address whether trust assets would be considered marital property in a divorce action, along with the financial and tax implications. Our attorneys also advise on post-divorce steps our clients can take to protect themselves and their children’s inheritance.

Are Trusts Marital Property Or Separate Property?

Applying Colorado law, it depends on the type of trust, whether the spouse is a grantor or beneficiary of the trust, and how distributions from a trust have been used during the marriage. These determinations can be highly complex and subject to litigation.

Revocable trusts, such as a living trust, are usually considered joint property if they were created by you or your spouse during the marriage. It doesn’t matter if the trust was settled (created) by one spouse or both – the presumption is that it was funded with marital assets. A revocable trust could be dissolved and divvied up or altered to make both spouses equal beneficiaries.  Revocable trusts created by other family members for the benefit of you or your spouse could possibly lead to a property interest, depending on the specific facts and circumstances involved.

Irrevocable trusts may or may not be considered marital property. Although the spouse does not control or own the assets, any distributions they received will be considered in a divorce. If those funds were kept separate, they may not be subject to property division. But if trust distributions were used to purchase a house together or poured into a joint investment or business, for example, those contributions may be deemed “commingled” property for purposes of divorce.

Even if a party’s interest in a trust or an anticipated inheritance from a trust is determined to be nonmarital property, that is not the end of the story. The court will consider those separate funds as income when:

  • Determining whether a spouse should pay or receive alimony
  • Setting the level of child support
  • Deciding what is fair in the equitable distribution of assets (i.e. whether a court would be likely to divide the marital property differently because of a spouse’s interest in a trust).

These are oversimplified examples of complex, technical legal considerations. Our attorneys can look at the specifics of your trust(s) to gauge how they may factor into your divorce proceedings.

Find Out Where You Stand With Trusts And Divorce

Once you know how trust assets will be characterized, we can plan and strategize accordingly. The skilled divorce attorneys of Stahly LLC are well-versed in the big-picture considerations of complex and high-asset divorces.

We invite you to arrange an evaluation to discuss your asset portfolio and other divorce considerations by calling 303-797-2900 or by sending us an email.